Dallah’s Q1 profit misses estimates on higher expenses

Dallah Healthcare Co.’s net profit of SAR 58.1 million for first quarter of 2018, has missed Aljazira Capital’s estimates of SAR 78.6 million, as well as those of market consensus.

The profit miss was attributed to higher pre-operating expenses of Namar Hospital, higher provisions due to implementing the IFRS-9, and slightly lower top-line, Aljazira Capital said in an earnings review.

Revenue in Q1 stood at SAR 308.6 million, slightly up by 1.9 percent year-on-year (YoY), but down 5.3 percent compared to the previous quarter, which the company said is due to seasonality effects. Aljazira Capital said Dallah’s revenue was impacted by the value-added tax (VAT) levy and the decline in expats, which affected traffic of patients.

Revenues, however, are expected to improve as Namar Hospital, and will likely increase 16 percent YoY to SAR 1.4 billion in 2018.

Meanwhile, gross margins for Q1 contracted to 42.7 percent from 45.5 percent in Q4 2017 and 47.4 percent a year ago.

Gross profit in Q1 stood at SAR 131.7 million, down 8.29 percent YoY and 11.13 percent from the previous quarter.

Operating income reached SAR 59.4 million in Q1, a 30.7 YoY decline, on higher selling, general and administrative expenses.

“Aside from Q1-2018 results, the ramp up of Namar is expected to pose pressure on margins in the form of pricing pressure; this is expected to take effect over the short and medium term,” Aljazira said.

“We also note that the opening of Namar hospital might change Dallah’s patient profile exposure and expose the company to slightly higher provisions going forward.”

The firm maintained a “neutral” rating on the stock with a target price of SAR 104 per share.